Britain’s banks have embarked on a secret lobbying drive to curtail the soaring cost of the payment protection insurance (PPI) mis-selling scandal.

The effort to limit the industry’s bill comes as the tab for the four biggest high street banks (Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland) last week passed £10bn following a rush of new claims submitted in the third quarter of the year.

The British Bankers’ Association (BBA) is now in talks with the City regulator to urge it to declare that the point at which consumer awareness of PPI mis-selling is widely-known has now legally been reached.

Under existing rules, customers have six years from the date on which they were sold a PPI policy to complain that it was mis-sold; however, they are also allowed to submit a claim three years after the point at which they say they became aware they were mis-sold to, even if that date is after the end of the six-year period.

The BBA is now arguing that because publicity about PPI mis-selling has been so widespread in the media and an advertising blitz orchestrated by claims management companies (CMCs), the Financial Services Authority (FSA) should now declare that the ‘point of knowledge’ has been passed.

Until such a declaration arrives from the FSA or the Financial Ombudsman Service (FOS), banks argue that they may face many more years of compensation claims worth billions of pounds.

Senior bankers are now also lobbying the Government that the escalating bill for PPI and other misconduct-related compensation risks stunting the economic recovery by restricting the amount of new lending available on banks’ balance sheets. Bankers believe that securing such a ruling is also crucial to their planning for capital distributions such as bonuses and dividends during the next year.

In a statement issued to Sky News, the BBA said it was “working with our members on a number of aspects of PPI complaints. The ongoing work focuses on three issues as a priority: addressing backlogs, making sure that customers can be confident that the offers they receive are right, and highlighting that there is no need for them to engage a claims management company.

“As part of this work, we are involved in ongoing discussions with the FSA to clarify the parameters of their complaints handling guidance.”

People close to the discussions confirmed that the discussions with the regulator referred to the three-year point of knowledge.

Last week, the bosses of banks including Lloyds, which has set aside more than £5.5bn for PPI compensation, said they were unlikely to have more clarity on their aggregate exposure for some time. Antonio Horta-Osorio, Lloyds chief executive, said he had written to the FOS to urge the bill for thousands of bogus PPI claims to be handed to claims firms to pay.

The FSA reiterated the existing timetable but declined to comment further. Sources close to the regulator pointed out that there remained a “grey area” into which proving that every PPI customer was aware that they were sold an inappropriate policy still fell.